Q3 2019 Earnings Call
Good morning, ladies and gentlemen, welcome to buy this conference call to discuss tricky will 19 results.
This time all participants are in at least an only mode.
Operator, we will conduct a question answer session and instructions will be given that that's <unk>.
Yes.
If you shouldn't require assistance during Nicole Please press the star followed by Zero as a reminder, this conference is being recorded in the recording will be available on the company's website at <unk> Dot Com I think that's best Earthlink.
This conference call is a compounded by his life presentation also available I think doctors link at the company's website and these drugs meet its being turned out that's well they bought casting being turned out both the all deal and is like James have a few seconds to late in relation to the audio Trust me that yes.
Before proceeding let me mention that forward looking statements are being made under the safe Harbor off the Securities Litigation Reform Act of 1996 actual performance could differ materially from that's anticipated in any forward looking comments as a result macroeconomic conditions market risks.
The other factors.
With us today are Mr. Eduardo just started his bartholomew president and CEO Mr. Luciano Siani BT.
For.
Mr. must have always been madly executive officer for ferrous minerals, Mr., Mark Traverse Executive officer for base metals.
Mr., Carlos Macedo safety and operational Excellence Executive officer, Mr. audition the bed either because that could it ops report business supports mr. other centric dumping How's your general counsel.
Mr. George that's funny about director of coal is strategy and we know exploration and he says Medina <unk> director of people.
Worst Mr. Eduardo Barthelemy are we supposed to each of the presentation on Bobby's tricky all 19 performance and after that she will be available for question and answers. It is now my pleasure to turn the call over to Mr. Eduardo Bartholomew, Sir you may now begin.
Okay. Thank you.
Morning, everyone.
Oh I would like to begin our conversation about this quarter's results by recalling to message if I have been reinforcing seems like to Bob's leadership.
First.
We fully repair what's happening too much.
Second.
We are committed to making body one of the safest and most reliable mining companies into.
To recap.
I'm, sorry safety people and reparation.
My Mom's, that's best after Braemar gene and we continue to be extremely committed to this three words.
We have baby in the way for new forms to make our business better safer and more stable.
We are working day after day, we felt very high level of Reger, the manager bar risks what else. So we see very kenai for everything that societies demand.
As you can seemed as like our objective is the full operational gene and each day, we've moved toward this goal.
Taking the lead to bring do you get into back to defected families and communities.
First.
We have opened a number of negotiations fronts to advance weve compensation weekly and broadly as possible.
Public authorities have been keep players and together, we had been able to close three very fortunate agreements addressing emergency.
Okay and labor Danny.
Over 2 billion <unk> or around 500 million dollar.
Have already been eight two individuals in compensation for material and modeled damage.
For the labor perspective, we have signed agreements already considering that families or more than 200 entity.
In addition.
We have answered you do another 22 agreements with different stakeholders, covering a variety of objects, including environmental remediation.
Oh, the environment abroad second water treatment station was already delivered and the work of taking the removals and treatment continues at a fast space.
Next slide please.
Well speaking no about safety I went we foresee this message we are worth.
Densely to be characterized nine upstream dams.
And then do you and he'd be dams.
We will be completely dependent to rising 2020.
Well next slide please.
I mentioned that it'll be what we're doing outside but no I would like to refer to some changes that we are seeking please.
You bet irrelevant step for our governance wants to open more information channels and discussion for the most recent manager in the comp.
We currently have for specialized kilometres one which is fully dedicated to jump that can go risk management.
We have also reinforced our models of lines will be stance with the new safety and operational excellence as active office, which already has a work blending please.
In our damn assessments and management, we're implementing a very high level overeager with the most conservative methods.
Speaking on our portfolio.
The company's assets on a global scale passing through a risk assessment at these fast because we want our asset portfolio to represent the value of the future.
In order to speed for the deals today, but I'll give you a better view during the body day in December .
Okay next please.
With relation to our business.
We're actively working to reduce bodies uncertain and achieve our objectives. Our third quarter results indicate yeah. We are on the road to stabilization. Please.
Remember that we said that the second quarter was a transitional.
When we started to resumed operations, we faced strong impact of fixed costs and emerging industry, one and also a large backs from stumpage expenses well.
In this third quarter, we have already moved towards the higher demolished.
As we anticipated we had higher volumes higher cost dilution and a good reduction you see one.
Above the dollars per ton.
Well good news operating and we have resumed part of the dry processing into watching Glenn you complex. The northern system production had anybody result, after heavy in unusual raised that occurred in the last quarter.
The next like.
Well, we do performance as you can seem to slide where sustaining a strong cash generation.
Not a point that deserves you're thinking our distributions.
As expected we had no provision adjustment this quarter.
What we have done is the gradual does imbursement of amounts provisioned, while being damages in various initiatives that we have developed related to promote.
As for the Niko business, we had higher productivity in this quarter with greater stability had the refineries the north Atlantic in Asia.
We expect as well a stronger fourth quarter you Brazil.
The resumption of little supplement what the symbolic steps toward the stability additional production as well in the base metals business.
Please.
Well you this context of stability station I went to highlights that we are working to ensure that our asset portfolio and operations represents the value of the future.
Hey body well position in this scenario of growing demand for social and environmental responsibility.
The flight to quality is a necessity currently there is a higher off for a better quality broader can the market, but that means a moment of temporary balance.
Well, we believed that the demand for better broad, it's we've continued to grow.
As some of you may have seen in investor duty No look dewbre body has a great potential to contribute to the reduction of green gas.
Emissions by the east industry. Therefore, we are evolving to sure the best and most flexible brought the portfolio I mean, this new reality.
Okay next slide please ask for capital allocation I'd be repeating this message and they'll do it to one more time.
The payments of dividends or buybacks depends on the progress of preparation.
Clearly we have made progress in this process and I believe that at some point, where you will have the appropriate conditions to talk about dividends.
But that moment has not yet the right.
In the meantime would have some options for capital occasionally discipline.
We have recently announced bond repurchases to continue on a debt reduction back.
As as I said before I hope to bring you would clear idea about this deep at body deals.
Okay.
Good.
I like to refer to our guidelines to reduce bodies on certain.
We have been working hard on each of these four points starting with grew by Jean.
Of course.
I believe that reparation keys to building a better.
Our governance is getting stronger and our risk management evolves every day.
This quarter, we took important steps towards stabilizing iron ore production.
Same time, we are working to habit portfolio that is even more adjusted to market demands. Finally, I reinforce that we'll continue we've heard a disciplined looked up the location.
Well as I said.
With the commitment of our entire team or more than 70000 employees, we will build a body that is stronger safer and more reliable.
With that we'd like to think your attention and best award to boost young we'll give more color on the third quarter results. Thank you.
Good morning.
Four topics I would like to highlights.
Targeting bye.
In the iron ore business.
Note on the costs as Youve seen we've delivered a reduction on c. one cash costs.
Regarding for a further reduction of one to one of the half dollars in the fourth quarter.
And going for additional reductions are very.
Linked to the.
Resumption of our production.
We're still operating at a level of two to $3 above what would be normalize costs, even after the fourth quarter reductions.
The reason for that is our production flow, especially in the south are very much.
Hindered.
We're trucking or where we didn't want to truck, we're not loading at the right loading points, what or railways, we are not blasting the mines guar some cases, using a dismantling but using a mining equipment.
This all adds to costs.
Also with the nine award freight rates have increased our average freight rates importantly in this quarter.
And that had to do with B.
Sudden increasing spot.
Rates following the restart of Brookwood to what we did was.
We had volumes, which were contracted on wanted to your contracts of affreightment.
We.
Sold these contracts in the market.
Because we didn't know if we were able to use them.
In order to four four broker to or not.
And once spoken to restart it we had to go back to the market and rehire freight, but now with much harder rates and exposed to spot market.
This has been normalized and in the fourth quarter, you should expect a reduction of volleys freight.
In a further reduction on the average of 2020 however.
Slightly higher freight rates in the first water, but slightly lower on the fourth quarter reductions across the year with the installation of scrubbers and less exposed are too low so for oil with the IMO regulations.
Second on the nickel business just wanted to.
Call your attention to the 30% hedging of production.
We have very strong.
Opex outlays into nickel business next year on the following year, especially with the completion of the voice E Bay.
Underground mine expansion.
Because of capital discipline, the businesses have to stand in their own two feet and therefore, 30% of the nickel production was hatched after the spiking prices.
Following the Indonesian or Ben.
Third on the cash flows.
As you've seen we had 3 billion U.S. dollars off cash flow generation, which together with 1.8 of funds, which were freeze and were released.
For a total of 4.8 less.
The acquisition of ferrous.
Let us to $4.3 billion of total cash inflows.
Which is exactly how much or net debt decreased in the quarter.
Some things how cash flow generation, some things didn't help.
On the positive side, we had a.
900 million positive effect on working capital.
All of which about half of it.
Strong the collection of invoices issued in the second quarter are very high prices.
And the outstanding invoices from the third to the fourth quarter dirt accounted for at much lower prices.
Very very big difference. So you see these this change in working capital cause accounts receivable go goes down.
But the.
The nature of it is collections from the very high prices on the second quarter. So.
This does not something that should be reversed on the other hand about 400 remain on comes with.
He is that we will need to pay in the following quarters, especially suppliers as investments accelerate throughout the ended the year.
Some provisions for variable compensation for employees freight payments leasing payments and the like so you should expect 400 billion to reverse over the next two quarters.
On your attention also for the amount of disbursements related to blow by Jean.
386 million U.S. dollar swore disbursed against provisions.
And I'm, not a 225 million where disbursed against maybe Don.
No more than 600 million U.S. dollar <unk> and this should be a good proxy will what to expect going forward over the next.
How many quarters. So this is are an important.
Reduction in cash flows going forward.
The 225 million for Braemar gene.
Come mostly from data they expanded tours that are not provision for for example.
The 400 people there are working on a reparation our employees of Ali.
The source of water for.
But for the the populations around the river.
The operation of the water treatment stations.
The monitoring of water.
Small civil works of reparation debt or have a smaller values and do not relate to a specific legal agreements.
So again as I said this would be typical going forward.
Again also something which was nonrecurring in the quarter was the 243 million newer stores that.
We're paid as premium for the retirement.
Of the bonds that Eduardo mentioned.
Well those those bonds were trading above par so we had to pay.
A premium in order to retire them that reduced our cash flows. So all in all the factors that help their cash flows are similar in magnitude to the fact that helped that decrease or cash flows. So 3 billion. You asked is very much a proxy over what the business effectively generated inter quarter.
Lastly, just to comment on that income.
Some of you might have noticed that the.
Financial expenses have increased in the quarter.
Yes, 486 million U.S. noncash charge because of the mark to market of or participation debentures.
We have increasing price by almost 20% in the quarter.
The lag increases in iron ore price, probably part of this price increase should reverse in the next quarter as I don't prices have come down.
Those debentures are very liquid so they tend to lag iron ore price movements and therefore part of these 486 million charge should reverse.
We now open for questions and answers.
Thank you, ladies and gentlemen, well now begin the question answer session. If it had a question. Please press the star Keith followed by one if at any time it would like to remove herself from the question in queue press. It starts you. Please Mr. Fix your questions just shoot at a time.
Our first question comes from Carlos de Alba Morgan Stanley Sir you May proceed.
Yes, good morning, everyone.
Thank you for taking my questions. The first one.
Maybe just kind of just to clarify.
So the them.
$600 million these bars related to remedy Neil.
How about.
For 46 on on on coming out of that well west provision before and the 225 that wins against an EBITDA. So this is something that you expect to be more or less recurring quarterly basis for the next few quarters, maybe until late 2020 or frankly.
I was just under 21, that's my first question and my second question, you said, you're given day around 3 billion normalized cash from operations I suspect to generate it per quarter going forward what.
What can we expect and what are the next steps or the road map in terms of liability management and what do you want to tackle given that the repayment of dividends.
The assumption of dividend payments if steel.
Oh, and what do you want to tackle and win when do you expect that we're going to see some announcement in terms of what are the liabilities and the company will will pay with the Sam strong cash generation. Thank you.
Got it thanks for your question.
Yes, you should expect similar disbursements.
Related to bring my GGR going forward.
Things that could abbreviate part of those disbursements are for example, if the populations resumed sourcing water from the River then you should see some decline but.
Whilst we're still waiting for the good news on.
That's a conservative assumption of what to expect going forward.
All the 3 billion normalized cash flow I didn't say that we should generate 3 billion each and every quarter coming forward remember that there is some seasonality in bothers cash flow generation tends to be stronger in the third and fourth quarter and less strong in the first and second.
So this is a normalized cash flow generation for a third quarter for four or Bobby just the snow.
In terms of liability management.
There are some non debt liabilities that we want to address.
First in line or the preferred shares Oh, NBR, which is a subsidiary that hold some iron ore assets and there's a financial investor that holds those preferred shares.
Let's be very.
We've been paying a lot of dividends because of iron ore prices on those preferred share. So we intend to withdraw those.
We are looking into some lease contracts or <unk> as well.
And you should continue to see gross that reduction given that the Kerry is clearly negative so.
Not only net that meet will reduce but also gross that needs to come down in order to eliminate this does carry and.
As regards dividend payments.
As we said we.
Link it very directly to reparation efforts.
And we don't see right now as having the conditions to resume dividend payments.
Thank you.
Our next question comes from John Brent HSBC Mrs. Mr., John You May proceed.
Great. Thanks for taking my questions I first wanted to ask you about the iron ore premiums.
So it sounds like you're pretty convinced that will return to normalized levels. I'm. Just wondering what gives you. The confidence is it an improvement in sort of the Chinese steel environment and improving margins there and if we don't see that improvement that you're expecting and the next three to six months would you.
Consider.
Potentially decreasing youre.
Quality of your Robin.
Your product portfolio, and maybe shipping or.
Lower quality product I guess, that's my first question and the second question just sorry to ask what do you have to capital management.
What else would you consider doing I mean, the the shareholder debentures is that something that you could look to to potentially buy back and get rid of those and on the dividends depending on how the fourth quarter shapes up.
It would appear that you'd have a net profit for.
For 2019 so.
Would you be obligated to pay a them at the minimum 25% dividends in the first quarter next year. Thank you.
Hello, John does this Marcello spinelli. Thank you for fourth question regarding the the pre <unk>.
Yeah, let's talk about it defines premiums or youre right depends on the.
The Chinese margins a with C.
Are you still see a pressure on the on the narrow margins in the this tool business in China.
Obviously, it depends on the of the price of the Oh the flats.
But the supply demand balance is more choose to decline the platts.
Readily.
Next year so.
This can make the at the pressure of the constraints of the.
The margins are better in this case.
On the other hands, we have a another component of this the premium price that the the.
The concentrates in China the competitors in China.
Most of the.
The mines came after the problem in Burma Gene also the rupture and then trillion.
Almost 30 million tons of concentrate.
Ill, leaving the market in the next week, we see these leaving the market and the next two quarters.
Well also have a reflect.
Reflection of the other concentrates that came to the market. So this is a gradual process.
We still see.
There is concentrates bothering to the premiums and the next water.
But gradually where we can see the.
The premiums for kinda jobs and be RBS going up.
After the concentrates we don't we don't expect to your working hard to resume do operation.
We see this has the effect of the higher price off the the flats.
And this process will decline the flat some to recover the premiums.
John we do not intend to.
Withdraw the the you named its shareholder debentures, I understand you're talking about the participation debentures.
Because the are extremely expensive right now because of the increasing iron ore prices. So there's a disconnect between the price of those debentures and the price of the share the share price for example.
Yeah on the what else to do.
There's something to highlight which is although the headline net debt is just 5.3 billion U.S. dollars.
One has to remember that we still have 4.7 billion U.S. provision to face, but in my view expenditure. So at this point in time, we're considering.
Liability to be like an expanded indebtness four to company and we have to have clarity on how this is going to progress in order to be more bold in terms of retiring older liabilities.
So.
You've heard many times that we are targeting a a net debt of two and didn't you.
As a coincidence if you just sum up the 5.3 with a 4.7 to get exactly to 10 billion.
You asked that so that's something.
We want you to have in mind, we were having you on the large the view a comprehensive view of our indebtedness at this point in time to be having a conservative side.
Next question.
Our next question comes from Timna Tarnished Bank of America Merrill Lynch.
Yes, Hey can't be Friday.
Just wanted to ask a little bit about that pellet premium and some Marco update that I've heard your I'm getting close it kept perhaps do we start and stop on the pellet premium and some marketing.
And then my second question I, just wanted to dive in a little bit more to the thoughts about green peg H.B. I kind of been moving slowly towards adopting more electric arc furnaces, but on a constraint is then the high cost scrap.
I think that this and additional volume first of all that short term my long term and what cannibalize your existing sales to China or is it kind of a necessary evolution to complement your and sustain your existing fabs. Thanks a lot.
Hi, Tim them think UBS is finale, thank you for for the question.
I'm talking about the pellet premium.
The dynamics of the market is quite different from from the fines.
Used to have negotiate anyone negotiation of the premiums with our clients.
After the disruption of offer.
And the index that went to almost 130.
With 60, a those but oh premium price the pellets almost reached 200.
Dollars in the premiums.
Make a lot of pressure made up a lot of pressure in our clients and the sustainability there of their business. So.
As a company that we are really focused on our clients, we decided to adjust to the way we negotiate the premiums we know quarterly.
Basis.
Just in this changes happen to to the third quarter and we're now moving forward with those dynamics.
And considering what what what is going to market.
This crap.
Cost this is a key.
Element for for this dynamics.
After China.
Uh huh.
The the close the market tool to import scratch there's.
The price went down and also a very important consumer off wrap that its turkey.
His other pressure they are production the probably they will.
Reduce the 11, 12% of their production.
And there's a lot of scrap available does that made it a lot of pressure in the in our reduction.
Palettes a in the market. So you would just adjusted.
The production to choose a guarantee that the pre meal or did it for the prediction the volumes not over volume to the market. So that's what happened.
And the the pellet premium side.
From the second question of H.B. I well we are.
In the process the choose to seek what he is going on in the market. We would have many alleged legislations.
Around the globe.
Europe is leading the process of Oh.
With that the commercialization of business.
And then our Chan.
The steel business. This is a the have to me that to make a lot of effort in the future and the next 10 years. So.
What we see that we need to be ready for the REIT portfolio.
Two guaranteed a feed the the died on feed for what the the clients we will need.
H.B. I <unk>, it's a possibility.
To solve part of the problem of the arc light.
And what we are we're doing it used to anticipate.
The movements and seek the technology, the red technology and be ready to.
Lucky any.
Any perspective of iron ore in the future.
Feed the derive a process or the right.
Way the our clients will will solve that this problem. So we're really committed to them.
And we are going to check and see what will be the right solution for each market and H.B. I is part of all of our portfolio Chu, who understand that will be or not a trend.
But it will be ready to to be.
The producer at the supplier for the iron ore for the future we have the best iron ore the market and this is a very good for what is a problem to solve this problem.
Okay, just to add ons generically speaking is not the move downstream and is not cannibalizing. Our main a broad that's always a matter of a phase and the reality to scrap is going to Greece. The need for a green our green fraud is going to increase and we're going to be able to supply debt. If the plant comes together with us always though is a process of.
Ventures or ideas together, two fewer need a niche but necessary to protect our core and not to move downstream and was gonna give some clarity on samarco because we're very optimistic that we're going to have the license to date.
So as you wish team, though we hope to have a good Friday today, and we see the permits for a samarco restart.
We will issue a press release wants it happens to give the full information to all the markets at the same time.
You will contain estimates of when Samarco will restart.
What are what is the forecast where volumes are going forward.
And some details about.
The restart.
Just giving you context.
As you know Samarco does not have haley's disposal systems. So that's a big constrained for.
So a full samarco restart.
And that's why you're going to see what you're going to see on the on the release, but let's let's wait for the good news and the details are gonna be known to everyone.
Our next question comes from West poor Macquarie.
Good afternoon, gentlemen, thank you for hosting the call I've two questions from my side. The first one is and just the thoughts on some of your.
Sort of depict let's call them the poor performing assets in the portfolio at the moment, So, obviously, Mozambique, and cold and B and C.
And just your thoughts on Windows.
My turn even thought positive.
And perhaps if our link that to your earlier comments on a risk assessment and.
Having the right portfolio for the value of the future. If you could just make some comments around base.
And then just on the hedge I'm just just sit on.
Okay I understand my understanding is the hedging is just for four just for one core toward what does it go until the end of 2020 hour I wasn't quite sure on that.
African steps some clarity around they've been nickel hedging. Thank you.
Hey, Grant. Thanks for question first two to two gets back to you on a broader view she's true we are revising all the portfolio not only the low performing was a the the matters not only the financial performance, but a holistic view on on risk. So.
You get more information as I mentioned on the call when were able to discuss that out for strategic a cycle, but I will ask mark drivers to talk a little bit Bovie and see a watch closely linked with the before but I want but mark to to detail you'd be more for you. Good what the strategist to get back to a better position and whether it's to the t. only to be more ball mill.
Some big.
Please mark.
Well from an operational perspective and profitability perspective, the results have been quite disappointing to date.
With respect to the question of getting to EBITDA neutral or positive clearly stabilization of production would be would be necessary clearly higher nickel prices that we've seen and cobalt prices will help but we really do need to find a stable.
Position in a in new Caledonia, but however, I think because of the disappointing nature. The results. We really are evaluating all options for the operations and looking for a.
A basis for stable operations, so that good good cost performance and operating performance, we expect to be able to inform you of our conclusions about what those viable solutions are in the near future.
In the meantime, we have taken some steps to too.
Moderate costs and also to protect our to minimize capital expenditures, we've re scope 10 and extended the schedule project, Lucy, which as our dry tailings project.
We extended that out a couple of years and really significantly reduce the capital and that project for next year in the year after.
Oh, Yeah, sorry, I repeat regarding Mozambique.
We're facing north up rather do you.
Yeah.
Most of them related to maintenance, we have problems with meant in itself a minor equipments, we have problems with meant in seemed to have been if station facilities.
But we also have some problems relate and they are consequence off on the previous ones that.
Availability off I run of mine.
You would.
Battery.
Producing.
Product seem to have an organization facilities the ratio of.
Coking coal and thermal coal everything we are they are all connected. So we we are we are I can guarantee to you that did.
The maintenance off off at the mine equipment is already dawn, we recorded very very well. So currently we are Ronnie yet.
Phuket past that demand.
We are reaching the last three months almost 300 million Boes run everything you've done in the mining operations on the.
The beneficial question do we are currently working very hard on Blaney and programming that maintenance, we will do next year, because we need to do just by two by spare parts and things like that bring some some.
Mechanic is and people for their day to day work off maintenance and that we we start doing using March next year I think by the end office first half of 2020.
The day beneficial policy do would be ready, we will make some changing the flu shoot us well in order to improve the quality of care products. So yeah. We we are quite sure.
We would do we can finish the ramp up off the operations by the end of the talking 20 and for showing 2021, we will return to a positive EBITDA.
I have no doubt about that.
Regarding the review of portfolios relate that to Mozambique, we we almost always.
Taken Nucor will do so you shoes and the company. After we finish this does work when you know the words by the end of next year. We can we can discuss for the this situation.
Grant on the hedge.
We have hedged to the end of 2020 , so each and every quarter.
30% approximately <unk> of our expected production.
Our next question comes from Alex hacking from Citi.
Yes. Thank you for the question I have two question first very specifically on iron ore.
Are you getting it any indication from steel mills in India, who are looking for iron ore next year, obviously, a lot of news and headlines around the auctions of the concessions and I'm wondering if the mills, they're getting nervous.
And then secondly on Nicole Mark Thanks for the color on B and C. I guess could you just give us an overview of the other major initiatives that are going out and in base metals.
I've lost track, a little bit of that with with permit Danielle and so on.
Where are we in the turnaround process I know you guys have kind of redesigned the Atlantic basin Flowsheet, you've taken quite a bit of production offline.
I guess, what's next thank you.
Hi, Alex Thanks for questions is a spinelli.
We are.
You're seeking for.
We're opportunistic in but we don't have any any information about the process yet.
Under a new concessions, but we don't have any any for.
Commission yet.
Mark please.
The base metals.
We have a major initiative to turn around the base metals business, it's been underway for more than a year I would say the primary focus.
Through this year has been too to really invest in our assets and make I say, a stable and predictable operator, we've really put a lot of effort and money into our asset integrity.
Rebuilding air our maintenance.
Programs, and really making sure that our assets are there to perform on an ongoing basis and maybe just a comment a little bit on on how things are going.
As we as Eduardo is telling us earlier.
We saw.
Strong Q3 production.
We saw the refinery stabilize in north Atlantic So the.
And Sudbury and the UK as well as said we came out of planned maintenance in the Asia refinery, so, but good Q3 performance and nickel and look very I would say look very good for Q4 with all the refineries are going well, we've seen significant improvement in stabilization in the mines in Canada, which.
Has been fantastic leading to.
Some improved copper production this year, which has been a real bonus for us.
In terms of some of the other assets I would say that Indonesia has really turned around nicely towards the second half of the year as we got through some major.
Maintenance in the first half.
Producing well costs have come down and EBITDA and cash flow affair picked up quite nicely. So looking very positive.
In October Puma, we're very happy with the court decision that allows us to continue and after being down for two years in the mine, it's taking a little bit of time to get back up that we're going to see that coming back around November and the processing plant as you think stockpile ore which is low.
For a grade so once the mine comes together with the the plants, we're going to see some better production and will move will really benefit from that next year and Q4 worth we're expecting a little bit below 4000 tons of ferronickel from the restart of onset Puma and in maybe a little bit of a comment on on.
Copper in Brazil.
Hello has performed extremely well in Q3 and and expect strong performance through Q4, we had record production in July great cost So record gold production as well I say go we've we struggled a little bit with them with some asset.
Availability issues, but we look to have that stabilized in Q4 and I've already commented on new Caledonia.
Oh.
Mark if you if you allow me just a few additions to that.
So with all this the expected performance in the fourth quarter, we expect at least a 20%.
About 20%, increasing nickel production, so because we're not going to have any major maintenance is in the fourth quarter.
Also you might have seen the news about or signing the heads of agreement with Indonesian government for divestiture in Indonesia important step to renewal or concession rights there.
The resumption of the prior levels of.
Production in nickel, especially north Atlantic's, it's contingent on the completion of voices be Meineke station, because I know if you remember when we decided to do the project.
We delayed by one of your decision as a result, the current open pit mine is not produce yet at a its.
Full capacity in order not to have a gap in production because of that a delay in the future, but we continue to have lots of options discussing also.
We mentioned last year on holiday potential agreement with Glencore to bringing a new ore body with nickel and copper additional production.
And we're very optimistic also on partnerships in Indonesia, whereby weve without any capital Indonesia by itself will be able to finance expansion opportunities with a with partners.
Our next question comes from Sergei don't quite solicitation Huh.
Oh, yes. Thank you very much I have two questions. One very short could you provide some update on what is your capex.
Expectations budget for this year and as we approaching.
20 to 20.
What do you think it will look like.
Next year, and secondly, one thing I'm going back to open a machine you.
<unk>.
<unk> expenses, so one thing I talked quite a understand you for you find instead it correctly, you spent about $600 million last quarter of which roughly 60% was.
Charged against a provisions and the rest was charged against a EBITDA and you expect this level DMT coming quarters. So it sounds like you have pretty good visibility.
And then the question is if you have such good level of visibility why Youre provisions don't go high as well you don't add to those provisions.
The amount that is being charged TPG not to be GE now, especially if it's at a very basic question.
So again on capital expenditures.
We should and 2019 with something around 3.6 billion U.S.
The rhythm the pace of execution was also jeopardize a little bit because of what am I doing especially in the beginning of the year and also we had the depreciation of the Brazilian real.
That lowers capital expenditures.
From 2020 onwards, we continue to expect copper expenditures to be a non issue. We continue to obviously, we will update guidance.
Invalidate, but we continue to see normalized levels of Capex very similar to what we've announced before.
There's some studies being done now to accelerate the filtration investments.
That might have some impact on capex, but when talking just.
Very few hundreds of millions of dollars. So some some things we are.
Considering as a result off well happening blew my GM in order to increase dry stacking of tailings, but nevertheless, the picture is pretty much stable and boring.
In terms of Ah, but my dream expenditures.
It's interesting because part of this that the the expenditures which are charged to EBITDA.
For example, the.
The the wages off the reparation team right. So from an accounting basis I cannot charge provision for those those those wages. So this these are valley a employees.
A lot of expansion as they relate to.
The water the lack of water supply. So we're supplying water for the nearby communities. We are operating the water treatments stations and for example, if all of a sudden we have a permission to resume sourcing water from the river those things can change very quickly so.
We are adopting a more conservative guidance guiding you that this should should remain stable over the coming quarters, what they are upside if things change those expenditures good reduce all the sudden.
Other examples of people, who are still in a living in hotels and for them, which for which we are providing food those situations also can change so.
There's not a a basis for identifying precisely.
A very well known liability to make a provision when it relates to those ongoing expenditures. So therefore, what I'm putting out for for you is just a gut feeling of Holly, we see things going and how they should translate on the on the income statement on this portion of it have a expands.
Sure.
Our next question comes from Tyler Broda RBC.
Great. Thanks, very much all my questions have been answered, but one of them on I guess, some you always seen the freight prices start to pull back here I guess, just would be able to give us an update on sort of how you see the freight market developing through 2020 with the IMO and just from your perspective.
Hi, Tyler this is Charlie Thank you for a question.
Well, what we see.
Well Dynamo is coming on January a the the yourself a little so for bunker.
Oh, we.
We have a difference today between both.
Bankers about it is about $250.
What we see next year, we we have this impact yeah, but at same time would have actions to.
To go.
To make up for four or for that so the first one is the scrubbers.
We are.
In line with though are the installation of the scrubbers in our fleet.
And in the end of next year, we're gonna have almost more than 70% of the of the vessels for the scrubbers.
Also have the Valemaxes that are coming and also the labor might still they will have an impact.
Great and also they will be would they scrubbers and already installed in the vessels.
And we see the.
That's again this actions have the.
The same level freight, although we expect some something around $18 like we have this disease.
Our next question comes from Peter question called Barclays.
Hi, Good morning, good afternoon, gentlemen, I'm just I'm one of the follow up on your comments I really put some marco.
I was curious if you can provide any you know update on your <unk> refund thinking.
On the.
The restart of actual production.
Kind of timeline that you have in mind.
Oh, so do back the amended business plan to be a into materially different or something you know someone different from prior plan.
I mean dose or that's my question.
Peter.
Be because of the sensitivity of the information this will be no through a formal released to the market's wants the restart licenses is granted which should happen today would answer a specific answers for all those questions.
The only context that I can give you a right now is.
The former business plan was made before but my view and there were some talese disposal solutions, that's samarco explored and define prior to then after bromide you there were some changes in the legislation local legislation.
And some structures.
Oh started to be deemed.
Who have damn correctly rustic. So for example, we view.
Deposit tailings on an exhaustive pit or if you stack tailings on a certain area.
Some of the characteristics of those areas change. So bottom line is tomorrow had to redo all its tailing disposals.
Plan.
And that's the reason why the revised business land is different from the previous one but the details will come out through a press release this afternoon.
<unk>.
Our next question comes from John Tumazos junk of wasn't very independent.
Thank you for taking my questions. Thank you for your service to the company.
Could you explain.
Some of the details of the Varg from Grand Day restarted.
Try processing.
Just to try processing a temporary make sure.
Until dams are rebuilding improved can it be improved with try stacking or magnetic separation as technology improves.
And how is the blending do you take maybe second half million tons of 65% northern or.
With 5 million tons of say, 55% or.
Or is it lower grade.
Use the quality premium does it cost $5 to bring the northern stuff to the south distant blending costs, one of the half dollars or some different them out her time for handling.
Excuse me if you could just explain the dry processing.
Restarts.
Hi, John I'm thinking for for the question does this Marcellus finale speaking here.
Well, let me let me give you some some colors in the resumption of Washington Your question Guernsey is.
Today, we are would be cool.
On a ball, but us minder, they're coming.
This is up to drive.
Processing operation.
The.
The limitation here that we don't we cannot use or the the dam now fall for the production.
We expect to have a matter of videos.
Three that's a that's a a them that is under construction in the end of next year. So after that we were going to have the.
The wet processing so.
Regarding the the magnetic process, we are still in the futures in this in this operation in 2020, you're not be ready yet so we'll be ready for for the production of with fuel train and.
Also we are adding the Mac and actually separation for for the process.
After the the fuel train so what we can expect <unk> off the for the quality in this during the dry processes that will be a high silica product.
We are using the high so leakage to blend in China for four be RBS.
Or would there be turned off wet processing, we have the pellets heat.
That will feed flashing green energy Palletizing plant by the end of the next year. So that's a that's the road map of watching it engine today, we have a step by step with the resumption, but the.
No the permit of the mining agency just a step by step process, So you're probably not the mine, but we need now.
We are ready made the das fall for the loading in the trains and the last permit will be regarding the the pellet plants.
We have a high city cup rather than the first the big most of the next year.
And the end of the year, we after a matter we just three Oh, we have the pellet feed in the and the full operational Washington, It by the plant the pellet plant we will return.
With a wood pellet feed from the market, we're buying from on the bucket to guarantee that operation of the of the pellet plant.
And that pellet plant is very important because it's the sole supplier of pellet feed for one of the steel mills in Brazil.
And remember I've spoken to beginning about additional logistics costs and for example, the supply of this client or what is C.S.A. it'd be very costly for body right now so the resumption of the path because it's been slight them to bottle with a very awkward logistics.
So for example, the restart of the pad Atlanta, reducing significantly those extraordinary logistics expenses or has the other side benefits as well.
This concludes today's question answer session. Mr tried to buy to let me deal at this time you May proceed to start closing statements.
Oh, Okay. Thank you thanks, everyone for the participation and for the questions.
As we mentioned during the call clearly the second quarter was a transition one and this one is a clear stabilisation moment for us both for iron ore and base metals, but I want to re force one thing very important our focus is extremely.
Given to do with variation of room, a gene into the improvement in our seeks to governance with debt I think our team here things that we reduced uncertainties and make as I mentioned value a much stronger safer and reliable company. Okay thing. Thanks for your participation on the hope to see you in the next call.
Thank you.
Actually [noise].
[noise] that does conclude by this conference call for today. Thank you very much for your participation you may now disconnect.